Global financial services firm UBS suggested rising mortgage rates before the end of the year.

George Boubouras, head of investment strategy and consulting at UBS's Australian wealth-management business, said Australian banks “should look at increasing mortgage rates outside the RBA between now and Christmas” because “That would be a prudent thing to do, from a shareholder perspective.”

Boubouras explained the increase would soften the impact of rising funding costs. Westpac banking corporation (ASX: WBC), the Commonwealth Bank of Australia (ASX: CBA), and the Australian and New Zealand Bank (ASX: ANZ) have maintained home-loan rates since December.

The banks have been facing difficulties with their lending profitability due to the higher cost of fund raising on debt markets. In August, the CBA claimed its funding costs had risen 1.22 percentage points because of higher deposit rates and fund raising costs.

The Reserve Bank of Australia, in fact, is aware of domestic banks relying on offshore and local bond sales. Offshore bond sales comprise 28 percent and local bond sales make 19 percent of the total funding.

The Standard Variable Rate (under wealth package) of the CBA has an initial interest rate of 6.66 and a comparison rate of 6.83. The Variable Smartfit of the Adelaide bank has an initial rate of 6.74 and a comparison rate of 6.83.